ROME – No longer will “not exclusively commercial” church-owned enterprises, such as hospitals, hotels or schools, be exempt from ICI-IMU property taxes. For such structures to be exempt, it will no longer be sufficient to set up a religious structure inside (this will, however, remain exempt). Tax inspectors will now consider the principal use and identify a percentage for each activity. Non-religious use of the property will be taxed. The new regulation affect other bodies, such as political parties, trade unions, associations and clubs that do not currently pay municipal property taxes. Yesterday, the Italian prime minister, Mario Monti, informed the vice-president of the European Commission, Joaquín Almunia, of his intention to present to Parliament “an amendment to clarify the matter further and definitively”. This issue has created much controversy and, following a formal complaint by the Radical Party in October 2010, led to initiation of an infringement procedure against Italy for breach of competition regulations and illegitimate state aid.

Letter to AlmuniaThe move was announced on the eve of the traditional reception at the Italian embassy to the Holy See to commemorate the Lateran Pacts, which will be attended by leading figures from the Vatican and the Italian bishops’ conference (CEI), and almost the entire Monti government. The timing confirms that, since property tax is not covered by the bilateral pacts, the move was an Italian government initiative. In fact, the issue was raised exactly one month ago by Mr Monti with Cardinal Bertone during a conversation after the premier’s official 14 January visit to the Vatican. At the time, the Holy See concurred that there could be no waivers from European regulations for property tax.

How much exemption is worthWidely varying figures on the actual value of the ICI-IMU exemption have been bandied about for years. The ecclesiastical exemption is worth not “billions” but perhaps €100 million, claimed Avvenire, the CEI newspaper, at the start of 2012, citing the figure of the Ceriani working group on tax erosion for real property belonging to all not-for-profit enterprises, including those that are church-owned . Putting a figure to the possible incremental tax revenue is also complicated by the fact that the properties belong to a vast range of discrete judicial persons, from dioceses to congregations and religious orders, plus properties in Italy owned by the Vatican itself. Recently, the local authority association ANCI calculated €500-700 million while ARES, the social research and development association, put the figure at €2.2 billion. ANCI’s president, Graziano Del Rio, has proposed a census since many properties have apparently not even been reported to the land registry. The main purpose of the census would be to identify properties used for commercial purposes. According to web-based estimates, there could be 100,000 properties involved, including 9,000 schools, 26,000 church-owned structures and 5,000 healthcare structures. Unofficial estimates by the tax agency put the potential revenue at €2 billion a year.

ArrearsVatican collaboration has made the government’s task easier as an authoritative interpretation of the regulation is awaited. The file prepared by treasury experts for Mr Monti in his capacity as economy minister posited a hard line on the part of the European Commission when it rules before the end of May, implying that the concessionary regime is likely to be rejected. The consequences are significant. Italy’s local authorities, which yesterday complained that they had not been consulted by the government, will be obliged to recover taxes not paid by the Church from 2005 onwards. If the regulations are redrafted beforehand, as the Prime Minister’s Office has announced, the infringement procedure should be terminated, a hope expressed by Mr Monti in his letter to Mr Almunia. In that case, arrears would not be due. If we make a prudent estimate of about €200 million a year, this means a saving over six years of about €1.2 billion.

CriteriaThe note from Palazzo Chigi lays down the criteria that will be followed in the amendment to the present law. Above all, the exemption will apply only to properties in which exclusively non-commercial activities are carried out, for example places of worship, parish recreation centres and the like. Regulations extending exemption to properties where non-commercial activities predominate but are not exclusive will be repealed. Exemption will also be restricted to the portion of the property in which the non-commercial activity is performed. Finally, a declaration mechanism, regulated by strict ministry of the economy directives, will be introduced to establish the ratio of commercial to non-commercial activities within an individual property.

CEI reactionThe reaction to Mr Monti’s decision from the Italian bishops’ conference was swift. CEI spokesman Mgr Domenico Pompili commented: “We are waiting to see precisely how the text is formulated so that we can make a detailed assessment”. He went on to repeat what Cardinal Bagnasco has maintained on several occasions, some of them recent: “Any intervention to introduce clarity over formulae in force will be examined with the utmost attention and sense of responsibility”. However, the CEI also warns about the need to safeguard the not-for-profit sector and hopes that its social value “is recognised and held in due account”.